World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Tuesday, March 24, 2009

Watching the flow… of trillions, of manipulation, of lies, of smokescreens & diversions, of twisted interpretations, of hope. It’s a never ending flow that’s enough to just leave you numb.

Today was another day of hearings. Of good questions being cut off. Of grandstanding, and of showmanship.

And the markets held themselves together pretty well, right up to the end of the day. And for the day, the DOW finished down 115 point, the S&P finished down 2%, the NDX lost 2%, and the RUT led the way down with a loss of 3.9%. The XLF lost 4.8%, IYR lost 7.1%, bonds were up, gold was down and the dollar was up.

Internally, decliners led advancers by a 7 to 3 margin, declining volume led on the NYSE by 82%. New lows fell to 6 from 8 yesterday. The Put/Call ratio finished at .76, the VIX fell, diverging from prices, but remains above the 200dma and below the 50dma.

When we look at a 20 day chart of the SPX you can see that we fell overnight, went back up to yesterday’s high and failed there. That could have been wave 5 of 5 up. Obviously, we are still in the center of the uptrend. The 30 minute stochastic fast is nearly oversold, the 10 minute is oversold, but the 60 minute has barely started down and is on a sell signal. Remember that the daily is overbought and if it comes down, we could make a substantial correction. The fibs are on the chart and you can see the most common retrace levels there. Fascinating to me is that the 23.6% extension of 666 held to the tenth of percent, the exact point:

Here’s a 30 day chart of the NDX. You can see the rising wedge has contained prices so far, but it’s a classic looking formation which I would expect to resolve downwards:

Looking at the SPX daily, we see what looks like a pretty mild and typical retrace of yesterday’s monster candle, and it’s held above the 50dma. However, it does appear that 5 waves up have completed, so there should be more correction. You can see that there’s support on the 50dma and just below there as well:

The DOW daily shows that we came down and closed below the upper Bollinger today after closing above it yesterday. That, all by itself is a sell signal, but you can see that the thin green 50dma stopped the decline as did the co-located dark green 20 year uptrend line (which may not be that accurately placed). Volume was definitely lighter today across the board, the bulls will point to that as non-confirming volume. However, when you go back over the bear market you will find that the first few days of decline are usually on lower volume and that it comes up later. Also note that the overall prices are higher yet, the volume is now declining:

The XLF daily created somewhat of an inverted hammer that’s inside of yesterday’s bar. I don’t think the hammer means anything, but it’s also still above the 50dma, but the daily stochastic has issued a sell signal:

When we look at a 20 day, 30 minute chart of the XLF, you can see what looks like a pretty clear double top and M pattern forming (IYR has what looks like a megaphone top on this timeframe). Again, there’s a large open gap below 8.75, and another down in the 6.50 range. Remember that the XLF P&F is sitting on a fresh sell signal and a 2.50 price target that conflicts with the bullish index targets. Look at the RSI… notice that with equal price peaks, the second RSI peak is lower. That’s a bearish divergence. The fast stochastic is oversold on this timeframe, but not the slow, and certainly not the 60 minute or daily:

The rally is still way overbought and I would expect a retrace at some point on profit taking if nothing else. This may very well be the long awaited start, that’s what the EW count would indicate along with the other things I’ve shown, including the NDX rising wedge pattern. The RUT was the weakest again today, and it tends to lead. It did close beneath its 50dma today, the only of the major indices to do so.

The bulls will be expecting a normal pullback, some consolidation. That may be true, there’s certainly a ton of bullish momentum. Watch the SPX 804 area and then the 795 level. If we get below 795, the odds of a material retrace increase. For me, the minimum retrace should be 38.2% which is down at 763 right now. The next lower pivots are at 789 and then 768.